Japan’s economy crawls ahead in Q2

Japan’s economy crawls ahead in Q2


Tokyo:Japan’s economy grew at a tepid 0.5% annualized pace in the second quarter of 2007, slowing sharply as exports and consumer spending lost steam.

The world’s second largest economy, which is in the midst of its longest post-war recovery, expanded for a 10th straight quarter, helped by brisk spending by companies on new plant and equipment.

But the sharp slowdown further dampened expectations that the Bank of Japan might raise its super-low interest rates next week, particularly in light of recent financial market turmoil sparked by the US housing sector woes.

“Growing concerns for a negative impact on the economy from the US subprime lending woes through market instability could lead the BoJ to hold off on a rate hike until September," predicted Morgan Stanley economist Takehiro Sato.

Japan’s GDP grew by just 0.1% in the three months to June as the economy hit the brakes after the first quarter’s 0.8% expansion, figures from the Cabinet Office showed.

The figures fell well short of analysts’ expectations for quarter-on-quarter growth of 0.3% and an annualized rate of 1.0%.

Concerns grew about sluggish consumer spending and slowing exports to the US. Private consumption growth cooled sharply to 0.4% quarter-on-quarter from 0.8% in the previous term, while export growth weakened to 0.9% from 3.4%.

Consumption slowed amid worries about higher local taxes, “but looking at the growth figures I say the economy keeps a steady undertone," said Tatsushi Shikano, an analyst at Mitsubishi UFJ Research and Consulting.

“The economy still showed growth... and consumption was steady. But in financial markets the outlook is unclear. This will make it unlikely for the central bank to go for an interest rate hike this month," said Shikano.

Helping the economy to crawl ahead in Q2, corporate capital expenditure growth picked up to 1.2% from 0.3% as companies continued to spend heavily on new factories and equipment.

Japan’s Economic and Fiscal Policy Minister Hiroko Ota said the economic recovery remained intact but the economy had yet to fully exit deflation. Analysts said economic growth could remain soft inQ3 due to impact on consumption and production of unfavourable weather and a major earthquake northwest of Tokyo last month.

The economy should “gradually gain momentum in October-December, particularly in personal consumption, owing to continued firm employment conditions on the back of a production expansion in the manufacturing sector ahead of the Beijing Olympics next year," forecast Morgan Stanley’s Sato.

The government also reported that Japan’s current account surplus in June grew 48.4% from a year earlier to 1.52 trillion yen ($12.84 billion), expanding for a sixth straight month although by less than expected.

Trade surplus alone grew 56.8% to 1.35 trillion yen as exports rose 16.1% to 6.93 trillion yen and imports gained 9.2% To 5.58 trillion yen.